U.K. Consumer Confidence Fell to Record Low in July, GfK Says

By Svenja O'Donnell

July 31 (Bloomberg) -- U.K. consumer confidence dropped to a record low in July, slipping below the level reached on the eve of the 1990 recession, as house prices slumped and inflation accelerated, GfK NOP said.

An index of confidence, based on a survey of 2,001 people, fell 5 points to minus 39, the lowest since the data began in 1974, GfK said today in London. The gauge fell to 4 points below the result for March 1990.

Britain's economic outlook has deteriorated in the past month after ``bad news'' on retail sales, Bank of England policy maker David Blanchflower said yesterday. The threat of another recession has helped erode support for Prime Minister Gordon Brown, whose ruling Labour Party had the lowest support since the early 1980s in a Populus Ltd. poll published this week.

``With the growing specter of the U.K. going into recession, people are pessimistic and concerned about their future,'' Donna Culverwell, a researcher at GfK NOP, said in a statement. ``Levels of confidence amongst consumers are not surprisingly low.''

Gauges of the general economic situation and the climate for major purchases dropped to the lowest on record, GfK said. The gauge of consumers' personal financial situation over the next 12 months fell nine points to minus 18, the lowest in 14 years.

The Confederation of British Industry's retail sales index dropped to the lowest in 25 years in July, house prices fell from a year earlier by the most in at least seven years, and banks granted the fewest mortgages since at least 1999 last month, reports showed this week.

`Bad News'

``There's been fairly bad news on retail sales and on a number of things,'' since the central bank's decision on July 10, Blanchflower said in an interview on the BBC's Radio Ulster station yesterday.

The Bank of England predicts that economic growth will be the weakest since the early 1990s and that inflation will accelerate to double its 2 percent target, while Governor Mervyn King said in May that the economy may experience ``the odd quarter or two of negative growth.'' Inflation accelerated to 3.8 percent in June.

Labor unions have struggled to win bigger pay raises to compensate for faster inflation. The median wage increase in wage negotiations was 3.5 percent in the three months through June, matching the result for the period through May, Incomes Data Services said in a separate report today.

The central bank has kept the benchmark interest rate unchanged at 5 percent for the past three months as policy makers struggle to curb inflation while trying to steer the economy away from a recession. The Monetary Policy Committee will next decide on rates on Aug. 7.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.